2017 (12) TMI 1282 - AT - Income Tax

Penalty u/s 271(1)(c) - non recording of satisfaction by AO - Held that - Recording of the satisfaction in the assessment order about the initiation of penalty is must. In absence of proper satisfaction about the initiation of penalty order the penalty is liable to be deleted. Thus, the submissions of the ld. AR for the assessee are convincible that the penalty was levied by assessing officer without proper satisfaction. In our view the ratio of decision in Reliance Petroproducts Ltd (2010 (3) TMI 80 - SUPREME COURT ) is directly applicable on the facts of the present case. Thus, the ld AR of assessee is succeeded in convincing us on his first two preposition that neither the AO recorded his satisfaction about initiating and in imposing the penalty on particular limb of section 271(1)(c) and there was difference of opinion on the disallowance of expenditure. Hence, the grounds of appeal raised by the assessee are allowed

Summary

Issues:
1. Failure to record direction for penalty initiation under section 271(1B) in assessment order.
2. Confirmation of penalty under section 271(1)(c) by CIT(A).
3. Interpretation of section 275(1)(a) regarding penalty order cut-off date.
4. Levying penalty on debatable issues.

Issue 1:
The appeal challenged the absence of a direction in the assessment order to initiate penalty under section 271(1B) of the Income Tax Act. The argument was that without such explicit direction, the penalty proceedings should be quashed. The appellant contended that the Assessing Officer (AO) failed to record satisfaction for penalty initiation under section 271(1)(c), thus questioning the validity of the penalty proceedings.

Issue 2:
The dispute revolved around the confirmation of the penalty under section 271(1)(c) by the Commissioner of Income-Tax (Appeals) [CIT(A)]. The appellant contested the action of the AO and CIT(A) in levying and upholding a penalty of ?15,00,483, emphasizing that the issue in question was debatable in nature, and therefore, penalty imposition was unwarranted.

Issue 3:
The issue of interpreting section 275(1)(a) was raised concerning the timeline for passing penalty orders. The appellant argued that the CIT(A) erred in applying the first proviso after the section, contending that the penalty order cut-off date should have been 31.05.2009 instead of 31.03.2010, as the penalty was levied during the pendency of an appeal before the ITAT.

Issue 4:
The contention was whether penalty imposition was justified on debatable issues. The appellant maintained that the penalty was imposed based on a mere difference of opinion between the assessee and the Revenue regarding the nature of expenses. It was argued that the expenses were revenue in nature according to the assessee, and therefore, penalty imposition was not warranted.

In the detailed analysis, the Tribunal found that the assessing officer failed to record satisfaction for initiating and imposing the penalty under section 271(1)(c) in the assessment order. The Tribunal emphasized that the mere making of a claim not sustainable in law does not attract a penalty under the said section. Citing relevant case laws, the Tribunal concluded that without proper satisfaction recorded in the assessment order, the penalty was liable to be deleted. Consequently, the Tribunal allowed the appeal of the assessee, highlighting the inadequacy in recording satisfaction for penalty initiation and the debatable nature of the issues in question.